W2 and/or Service Advisors:

Does AdvisorLoans help W2, IAR, AFA, Service, and Novice advisors with loans?

Yes. While virtually all other lenders in the advisor lending niche will not take on these loans without a seller fully guaranteeing them, we love helping these advisors grow through acquisitions.

Can I keep my current W2 income after the acquisition loan is funded?

Yes, as long as the acquired revenue is being received as 1099.

Is there a minimum amount of AUM required for the borrower?

Many conventional lenders will have an official minimum AUM requirement of $20M to $50M to be considered for even a small loan. The SBA itself does not have a minimum AUM requirement, but many SBA lenders do set a borrower minimum AUM of $20M to $30M. AdvisorLoans does not have a minimum AUM size we will work with for SBA loans, we even help advisors with no AUM get acquisition loans.

I’m 1099 with AUM, how likely is it I would need a cash down payment?

For SBA loans, back of the napkin, an advisor with $100K in revenue that receives a $200K valuation (at just a 2 times multiple) would be able to purchase a $2 million acquisition without a down payment. If a buyer’s practice values at $500K then a $5 million (minus SBA fees) acquisition could be done without a cash down payment.

I’m currently a W-2 advisor, how likely is a down payment requirement?

For SBA loans, a startup business automatically triggers the 10% equity injection rule. Startups would be required to either come up with 10% of the purchase price in cash, or 5% in cash if seller will finance 5% on a full standby promissory note.

I’m a 1099 advisor but I don’t own my own book, how likely is a down payment requirement?

For SBA loans, if you don’t have a book, or production you own at all, you would not be able to apply any practice value to the equity injection rule and therefore would be required to either come up with 10% of the purchase price in cash, or if seller will finance 10% on a full standby promissory note.

What are the bank qualifying issues with W2 and Next-Gen advisors?

Qualifying Variances Depending on the W2 Advisor W2 advisors qualify differently and each deal can have variance from other deals.

For instance, let’s consider a W2 advisor with 10 years of experience in an advisory business This advisor has a decent personal financial statement (PFS) and good credit, indicating they practice what they preach from the bank's viewpoint. If the advisor has only five years of experience, the bank might set a higher threshold for the initial GDC required and a lower loan limit they feel comfortable approving.

In short, an advisor with three years of experience and a PFS that reflects this as well, is unlikely to secure a $3 million loan, even with positive cash flow. In banking, the individual’s experience and personal financial statement play a crucial role. The bank assesses whether the advisor can manage payments and avoid default during downturns. In the worst-case scenario, they consider if the advisor has the means to cover payments if a default occurs.

The more seasoned the W2 advisor, the stronger their personal financial statement tends to be. Credentials such as CFP (Certified Financial Planner) or CFA (Chartered Financial Analyst) also carry weight in this evaluation, though they are not decision factors. Advisors with more experience and impressive qualifications will generally have access to more favorable loan scenarios than those with less experience or weaker financial profiles. Each case is unique and requires individual negotiation.

…as Do the SBA lenders

1. SBA has Policies.
2. Lenders have policies in addition to SBA policies.
3. Lenders policies differ from each other.

SBA Has Policies and Then SBA Lenders Each have their Own Policies When it comes to SBA lending, it’s crucial to note that while the SBA has its own set of rules and policies, many issues are subject to the individual bank’s non-SBA (conventional) policies. Each bank also has its distinct policies and qualifying criteria, which are layered on top of SBA regulations. This means that an advisor who qualifies for an SBA loan might not necessarily meet the criteria for a specific loan with a particular bank for reasons unrelated to the SBA itself.

SBA Has New Rules The last time the SBA drastically change acquisition based ruled like this was in 2018 and everyone in the SBA lending business had to think a different way. In October 2023 this happened again and now many of the things you used to do you can't and things you couldn't do you can. SBA is also deferring more and more decisions to the individual bank's policies. You won't see this anywhere else (except copied and modified versions of this). Now, let's explore creative strategies that W2 advisors can use to leverage SBA loans.

What about a W2 advisor buying first book of business?

Next-Gen & W2 Advisor Lending How does financing work for a W-2 advisor seeking to buy out their book of business and transition fully to a 1099 compensation structure, or possibly a hybrid W-2/1099 role? What steps must the W-2 advisor take to gain ownership of their book while compensating the practice or senior advisor with an override, platform fee, or overhead fee for the support provided? There are options. W2 & Next-gen Advisor Buying Their First Book/Assets Financing partial and complete books and practices is entirely possible for W2 advisors and depending on your perspective, this model offers its own set of benefits.

Can sell partial books of assets as one time events, then more maybe later as a we'll-see-how-it-goes future sale, or sell assets in structured tranches over time.

Unlike selling partial equity, selling partial assets avoids personal or corporate guaranties on the selling side.

The equity injection requirement for W2 advisor buying a book is 10% which can be cash down payment or seller financed on a two-year standby note. But the equity injection for an expansion loan is waived. So if the W2 advisor first becomes an established advisory business then it could be structured as an expansion because it in fact would be. These are looked at on a case by case basis but bottom line is that the SBA makes it viable to get loans at 90% and 100% LTV compared to a 75% typical LTV conventional loan.

What if W2 also has a 1099 book?

W2 Advisor Book Buyout SBA Loans W2 Advisor Buys A Book Asset Purchase / Book Buyout

No Down Payment Option This can be paid 10% cash down but is not required if seller instead does the 10% two-year standby note.

10% Seller Standby Financing The seller can eliminate the need for the buyer to come up with a 10% cash down payment with a two-year full standby seller note. The 2 conditions is the note can't have a balloon payment and must not have any payments (P&I) paid during the first 24 months. These are typically 7-10 year terms with the first 2 years on standby.

No Seller Guaranty This is a simple asset/book sale and there is never a seller guaranty in an asset sale, especially a partial book buyout.

W2 Advisor Who Also Has 1099 Business Buys a Book Expansion Acquisition

No Down Payment There is no down payment required by the SBA and it will only be dependent on the bank feeling comfortable with the experience and credit of the advisor in relation to the size loan they are seeking.

No Seller Financing Since there is no equity injection requirement then there is not a down payment or seller financing requirement. The only seller financing required is when there are qualifying or cash flow issues.

No Seller Guaranty This is a simple asset/book sale and there is never a seller guaranty in an asset sale, especially a partial book buyout. SBA seller guaranties come on the partial equity buy-in side but not partial asset side.

What are the biggest lending and M&A myths for Next-gen Advisors to know?

W2 NEXT-GEN ADVISOR CAN'T BUY ASSETS WITHOUT A DOWN PAYMENT A 1099 next-gen advisor who qualifies for an SBA expansion loan can avoid a down payment. The W2 advisor can establish their new 1099 advisory business and do an expansion loan while maintaining W2 income. A W2 advisor whose loan does not qualify as an expansion loan can avoid a cash down payment if the seller does the 10% two-year standby note.

SUCCESSION THROUGH EQUITY IS THE ONLY WAY TO TRANSITION TO NEXT-GEN ADVISOR OVER TIME It's one way but not the only way. Partial asset tranche sales and a converger plan where there is a structured buy-transition-buy model are two structured ways (with a lot of benefits) whereby a seller can sell to their internal or next-gen advisors over a defined period without convoluting equity shares and ownership.

SELLERS HAVE TO GUARANTY ANY NEXT-GEN LOAN Being "next-gen" has nothing directly to do with a seller guarantying your loan. It's all about if the acquisition is an equity buy-in or a book, the ownership makeup after the sale, and the same fundamentals all other loans are judged by like cash flow, equity injection thresholds, and credit policy. There are no seller guaranty loan options.

SELLERS CAN ALWAYS GET A BETTER DEAL IF THEY SELL TO A PEER Really? Full valuation price, 90% paid up front, and no clawback is a pretty strong offer out there. When selling to a qualified internal employee who has strong existing relationships with the clients, the seller would not usually have to finance more than 10% of the purchase price. And the only reason they need to do this is to get the buyer out of the 10% cash down payment requirement.

SELLERS HAVE TO FINANCE A BIG PORTION OF ANY NEXT-GEN LOAN If the next-gen advisor is 1099 and owns a book then they could qualify for a complete or partial book acquisition without any seller financing required. If the W2 next-gen internal has 10% cash down payment then the same applies.

THERE IS NO WAY A $50K GDC ADVISOR CAN GET A $1M LOAN WITH NO DOWN PAYMENT OR SELLER FINANCING Yes there is, maybe, most likely. If the advisor has 5+ years experience, a decent PFS, clean U4, great credit, and has a $50,000 recurring revenue book they own and receive 1099 compensation for, then yes this is possible through an SBA loan.